Category: inBriefs

DMCC Company Regulations 2020: Keeping up with international best practices

The Dubai Multi Commodities Centre (DMCC) Authority has recently issued new company regulations (the Company Regulations 2020). The Company Regulations 2020 came into effect on 2 January 2020 and they repeal and replace the previous DMCC Company Regulations 2003 (DMCC Regulation No. 1 of 2003, as amended by DMCC Regulation No. 1 of 2007, DMCC Regulation No. 1 of 2009 and DMCC Regulation No. 1 of 2013) (the Previous Company Regulations).

 

The Company Regulations 2020 provide for more clarity and flexibility for businesses wishing to conduct business in and from the DMCC. Note that Company Regulations 2020 are also applicable to branches of foreign companies established in the DMCC.

 

The Company Regulations 2020 expressly state that the provisions of Federal Law No. 2 of 2015 Concerning Commercial Companies (i.e. the Federal Companies Law applicable to mainland/onshore entities) do not apply to any DMCC company or branch in DMCC.

 

Transition and Compliance Requirements for Existing DMCC Companies

 

The Company Regulations 2020 do not impose an obligation on existing DMCC companies to take active steps for compliance unless their existing Articles of Association (Articles) are contrary to or inconsistent with the Company Regulations 2020. The Company Regulations 2020 allow the DMCC Authority to establish transitional provisions to facilitate the transition from the Previous Company Regulations (and any rule, regulation, policy or decision made under the Previous Company Regulations) to the Company Regulations 2020.

 

To the extent that the Articles of a DMCC company are contrary to, or inconsistent with the Company Regulations 2020, such a company must amend the non-compliant provisions by 2 January 2022 (being 24 months from the date the Company Regulations 2020 came into effect).

 

Important Changes in the Company Regulations 2020:

 

We have set out below an overview of the key changes and updates introduced by the Company Regulations 2020:

 

Articles of Association

 

Companies in the DMCC will now have more flexibility when drafting and adopting Articles. Under the Company Regulations 2020, DMCC companies have the following options when it comes to adopting Articles:

 

1) to adopt the template Articles prescribed by the Dubai Multi Commodities Centre Authority (DMCCA) (the Standard DMCC Articles);

2) to amend clauses of the Standard DMCC Articles; or

3) to adopt their own version of the Articles – provided that they meet the requirements as set out in the Company Regulations 2020.

 

If a DMCC company decides to adopt its own bespoke Articles, it must provide the Registrar of Companies (the Registrar) with a legal opinion that the new Articles do not contain any provisions which are contrary to or inconsistent with the Company Regulations 2020.

 

Furthermore, if at any time, the Registrar notifies a DMCC company that the Articles contain a provision deemed contrary to or inconsistent with the Company Regulations 2020, the said DMCC company must amend its Articles within a specified time frame and in such manner as the Registrar may direct.

 

It is important to point out that the Previous Company Regulations permitted minor amendments to the Standard DMCC Articles. However, amending the Standard DMCC Articles was not very common and shareholders of a DMCC company would often, along with the Standard DMCC Articles, generally rely on a separate shareholders’ agreement.

 

The ability to adopt bespoke Articles  may not have any benefit to a wholly owned subsidiary however if the DMCC company is a joint venture between two or more unrelated parties, adoption of  bespoke Articles can provide parties with an additional source of protection to ensure that the contractual provisions agreed to in their shareholders’ agreement are honored.

 

Share Classes

 

Companies in the DMCC will have the option to structure their shareholdings in the way that best suits their requirements. The Previous Company Regulations only allowed one class of shares. Under the Companies Regulations 2020, a DMCC company may issue different types or classes of shares, provided that the rights of each type or class of shares is stipulated in the Articles of the company.

 

Up until now, if parties wanted to prescribe different rights to shares (and therefore have more than one class of shares) their only option in the UAE was to look to the incorporation of a company in the Dubai International Financial Centre or the Abu Dhabi Global Market.

 

Issuance of different classes of shares is very common in other developed jurisdictions. Moreover, it is particularly relevant for start-up companies, as they require the ability to issue different classes of shares to founders and investors during various stages of their growth. With DMCC attracting more and more start-up companies, this will definitely be viewed as a positive development.

 

Share Capital Requirements

 

The Company Regulations 2020 have removed the AED 50,000 minimum share capital requirement.  Under the Company Regulations 2020, the incorporator may decide the share capital which is sufficient for the activities which it wishes to undertake pursuant to its license issued by the DMCCA. However, the Registrar may, from time to time, specify a minimum amount of share capital.

 

Although the minimum share capital requirement has been removed, practically, we may still see companies in DMCC and/or the Registrar using AED 50,000 as the benchmark for the share capital requirement as is the case onshore in the UAE.

 

In making this change, the DMCC has followed many other free zones in the UAE, such as the Jebel Ali Free Zone, which originally had minimum share capital requirement(s) (depending on the type of company).

 

Dormant Companies

 

The Companies Regulations 2020 introduces the concept of dormant companies. A DMCC company may request the Registrar to suspend its license for a period of up to 12 months or longer (as approved by the Registrar). A company whose license has been suspended by the Registrar must not conduct any business under the suspended license until such time the suspended license is reactivated.

 

The Registrar or the DMCCA has the authority to issue additional rules in respect of dormant companies.

 

If there are cost benefits (e.g. waiver from requirement(s) to pay the license fee or lease office space in the DMCC during the suspended period), DMCC companies which are going through financial difficulties or restructuring may consider requesting the Registrar to suspend its license.

 

Officeholders and Corporate Governance

 

Section 9 of the Company Regulations 2020 address corporate governance standards for officeholders by clarifying the roles and responsibilities of the director(s), the manager and the secretary of a DMCC company. Further, the DMCCA has also published Officer Rules which the directors, the manager and the secretary of a company are required to comply with.

 

While the director(s) and the manager must be natural persons, the Company Regulations 2020 provide that the secretary need not be a natural person, thus permitting the appointment of corporate service providers as the secretary of a company.

 

Among the changes in the Company Regulations 2020 is the introduction of provisions expressly dealing with the appointment of the company’s manager and a detailed explanation of his/her functions. A manager (whose name is mentioned on the company’s license) is viewed as the face/primary contact of the company. Most businesses rely on its manager to carry out day-to-day operations. Recognising the role of a manager and his/her responsibilities is a welcome introduction in the Company Regulations 2020.

 

The Previous Company Regulations provided that a DMCC company can have a maximum of six directors. The Company Regulations 2020 are silent on the maximum number of directors and state that the business and affairs of a DMCC company must be managed by one or more directors. Thus, the Articles of a DMCC company will have flexibility to determine the maximum number of directors.

 

It should also be noted that the Company Regulations 2020 prohibit a DMCC company from providing financial assistance to a director.

 

Audited Accounts

 

Under the Previous Company Regulations, a DMCC company was required to submit the auditor’s signed and stamped financial statement summary sheet and audited financial statements within 90 days after the end of each financial year. Many companies were unable to comply with this timeframe. The Companies Regulations 2020 provide a more reasonable timeframe (six months) within which a company is required to submit audited financial statements to the DMCCA.

 

Winding up

 

The Company Regulations 2020 have introduced detailed provisions on the winding up of a DMCC company. These provisions include situations wherein the DMCC company is undergoing a solvent winding-up, summary winding-up, insolvent winding up, or involuntary winding-up.

 

Additionally, the Company Regulations 2020 specifically state that the provisions of the Federal Law 9 of 2016 (the Federal Bankruptcy Law) shall be applicable to DMCC companies.

 

Transfer of Domicile/Jurisdiction

 

The Company Regulations 2020 have introduced the concept of transfer of domicile/jurisdiction of incorporation of a foreign company (i.e. a non-DMCC company) into the DMCC and transfer of domicile/jurisdiction of incorporation of a DMCC company into another jurisdiction. The transfer of domicile/jurisdiction regulations exists in some of the other free zones of the UAE.

 

Any foreign company who wishes to be incorporated in the DMCC and wishes to be regulated by laws as applicable to companies in the DMCC, may wish to transfer its current jurisdiction of incorporation (provided the laws of the current jurisdiction permit the transfer of domicile) to the DMCC (as the new jurisdiction of incorporation).

 

Conclusion

 

The Company Regulations 2020 have therefore introduced some welcomed changes to the features of companies incorporated in the DMCC.  All clients which have companies in the DMCC should review the company’s Articles to ensure compliance with the Companies Regulations 2020 prior to the end of the transitional period. ■

Recent measures implemented by the UAE authorities in response to COVID-19

The UAE authorities have been dynamic in implementing measures to control the spread of COVID-19 within the UAE. Please find below a non-exhaustive list of noteworthy measures that have been implemented by various UAE authorities to date.

 

Preventive Guidelines 

 

UAE Ministry of Health and Prevention (MOH): MOH has set up guidelines on preventive measures, as well as contact centres for medical support or inquiries on the coronavirus at the Department of Health, MOH and the Dubai Health Authority (DHA).

 

Remote Working System

 

The Dubai Executive Council: On 15 March 2020, the Executive Council issued a letter to Dubai authorities on the implementation of a remote working system with effect from 17 March until further notice. This letter sets out rules (among others) on how services are to be handled or prioritized, the required percentage of employees to work remotely, the requirement for all government employees to abide by the standards and controls approved by the Dubai Electronic Security Centre and that any suspension of services must be announced publicly with prior coordination with the Government of Dubai Media Office.

 

In compliance with the letter, certain authorities have implemented the remote working system with others to follow suit shortly. The noteworthy authorities that have implemented the remote working system are:

 

1. Dubai Courts:

 

• As of 17 March 2020, the Case Management Department has closed all doors to the public. To prepare a case before the Dubai Courts, individuals must now contact the Case Management Department via a BOTIM app, phone call or email.

• Pursuant to Resolution 30 of 2020 issued by the Dubai Courts dated 17 March 2020, all court hearings before the Court of Cassation, Court of Appeal and Court of First Instance will be postponed, and issuance of certificates and personal status documents will be suspended, from 22 March 2020 to 16 April 2020. The Dubai Courts will however continue to hear temporary and urgent matters, as well as criminal cases and appeals that relate to detainees. Courts will no longer accept claims and applications unless they are submitted electronically.

 

2. DIFC Courts:

 

• The DIFC Court and Registry Offices have also closed its doors to the public from 17 March 2020 until 26 April 2020 (or pending further notice), and will operate on a (generally) completely remote basis. Inquiries, urgent queries and applications must be made by email or telephone.

• Generally, hearings before the Court of First Instance and the Small Claims Tribunal will be done via teleconference (unless agreed otherwise).

• The pro bono clinic, DIFC Court’s library and other rooms shall be temporarily closed.

• Probate appointments will be suspended until 26 April 2020 or pending further notice.

 

3. The Federal Authority for Identity and Citizenship: Smart services are set up so that certain applications can be done online (e.g., renewal of Emirates ID cards and existing UAE residence visas) to reduce the number of visitors.

 

Distance Learning

 

Knowledge and Human Development Authority (KHDA): Pursuant to a Circular issued by the KHDA dated 8 March 2020, no students are permitted on the school premises from 8 March 2020 to 4 April 2020. Schools are required to implement distance learning from 22 March 2020.

 

Restrictions or Temporary Suspension on Businesses 

 

Dubai Municipality (DM):

 

• The DM issued multiple circulars on 11 March 2020 requiring various businesses to increase the frequency of cleaning and disinfection, to ensure the availability of hand sanitizers and hand soap and to document all cleaning and disinfection operations and to list the disinfectants used. Such businesses include (among others): schools, salons, residential buildings, hotels, malls, gyms. Since then, the DM has issued further circulars specifically addressing salons, restaurants and food delivery service providers with restrictions on operations, such as permanently closing the waiting areas of salons and restaurants, and requiring food delivery service providers to register their food delivery and transportation with DM’s FOODWATCH platform.

• In conjunction with the Dubai Department of Economic Development (DDED), the DM imposed a shisha ban on cafes. As of 17 March 2020, DM has closed nine cafes for violating this ban.

 

DDED:

 

• Pursuant to a circular posted on a social media site of the Government of Dubai Media Office, the DDED temporarily suspended all cinemas, theme parks, game centres, massage parlours and spas until the end of March 2020.

• The DDED Consumer Protection Department has directed retailers to ensure that retailers sell detergent products and sanitizers at normal prices. To date, it has inspected 203 commercial outlets, issued 35 warnings and nine violation notices to shops that were found to have increased prices for these products.

 

Dubai Culture and Arts Authority: Operations at museums, historical sites and public libraries are temporarily suspended until the end of March.

 

Department of Tourism and Commerce Marketing: Operations at

entertainment venues, hospitality establishments, wedding halls, theme parks, sea cruises, desert camps, tours (safaris) and floating restaurants are temporarily suspended until the end of March.

 

Abu Dhabi Department of Economic Development (ADDED): Pursuant to circulars issued by the ADDED, operations at entertainment game halls and cinemas are temporarily suspended. Similar to the DDED, shishas are also temporarily suspended from being served at restaurants and coffee shops. The Government of Abu Dhabi Media Office further provides that the main touristic attractions, theme parks and cultural destinations (such as the Louvre and the Presidential Palace) shall also be temporarily closed until the end of March.

 

Abu Dhabi Ports: As of 14 March 2020, cruise operations are suspended for all ships at Abu Dhabi Cruise Terminal in Zayed Port and Sir Bani Yas Cruise Beach until further notice.

 

Abu Dhabi Department of Culture and Tourism: Pursuant to a circular dated 13 March 2020, all events and operation of night clubs are temporarily suspended until the end of March.

 

Restriction on Travel / Transportation

 

UAE Ministry of Foreign Affairs and International Cooperation (MOFA):

 

There is currently:

 

• a travel ban on Iran, Thailand, Qatar and Karabakh Mountainous Region; and

• travel warnings with respect to China, Lebanon, Madagascar, Congo, Yemen and South Sudan.

 

Federal Transport Authority (FTA):

 

• Ferry services to and from Iran are suspended until further notice.

• Ship masters must: (i) send health declarations, along with an undertaking that no crew member is suffering from COVID-19, to UAE port authorities 72 hours prior to arriving in the UAE irrespective of the last port of call, and (ii) report any suspected cases on the vessel (whether during the vessel stay or anchorage at the berth) to the FTA and the relevant UAE health authority.

 

Dubai and Abu Dhabi International Airports:

 

Effective as of 17 March 2020 (until further notice), the issuance of UAE entry visas is temporarily suspended. This suspension however does not apply to individuals with diplomatic passports or passports from visa-exempt countries that are entitled to visas on arrival. Flights to and from certain countries (e.g., Saudi Arabia, Bahrain, Lebanon, Syria and Turkey) have been temporarily suspended.

 

As per the Dubai International Airport’s recent alert, all passengers will be required to go through a non-intrusive thermal screening process. Passengers from any of the following countries will undergo both thermal screening and a nasal swab carried out by the DHA’s medical team based at the airport: Egypt, Italy (Rome only), China (Beijing only) and Thailand. As per a video tutorial prepared by the Government of Dubai Media Office, passengers with a high body temperature will be sent to hospitals (and a medical swab will be taken for a lab test). If a passenger tests positive for COVID-19, the passenger will be required to stay at the quarantine facility until the passenger tests negative for COVID-19. This quarantine period is likely to take a few weeks. The DHA will also arrange for individuals that have been in contact with the affected person to be screened (and if required, quarantined) as well.

 

As per the Abu Dhabi International Airport’s recent alert, all passengers would be required to go through an advance polymerase chain reaction (PCR) testing at the airport, then self-isolate for four days. Following the four-day isolation period, the passengers will then be required to undertake another PCR test.

 

Economic Stimulus

 

The Dubai Crown Prince and Executive Council Chairman has launched an AED 1.5 billion stimulus package to support Dubai’s business sector over the next three months. This stimulus is anticipated to result in the following (among others):

 

• freezing the market fees levied on facilities operating in Dubai;

• reduction of license renewal fees or by permitting onshore entities to renew their licenses without renewing their lease contracts;

• reduction of municipality fees imposed on sales at hotels;

• exemption of charges incurred from the cancellation or postponement of events; and

• reduction of the water and electricity bill by 10% for Dubai residents for the next three months.

 

* * *

 

As stated above, new measures have been, and are expected to continue to be, introduced and implemented in very short notice. Afridi & Angell has been following and will continue to follow official sources for further updates and notices. ■

 

 

Interim relief prior to starting arbitrations under the Federal Arbitration Law: A note on recent experiences

 

Afridi & Angell was recently successful in obtaining interim orders from the Dubai Courts attaching bank guarantees pending commencement of arbitration proceedings. The first matter involved two guarantees issued as performance bonds in two separate construction contracts, both which contained an arbitration clause under the Dubai International Arbitration Centre (DIAC) Rules. The second matter involved an advance payment guarantee for a transport contract which contained an arbitration clause under the Singapore International Arbitration Centre (SIAC) Rules seated in Singapore. Some observations relating to these proceedings are set out below.

 

1. The applications for provisional relief in both cases were filed in the Dubai Court of Appeal. The Federal Arbitration Law (Law No. 6 of 2018) provides that a party may seek interim relief either from the tribunal, or the ‘Competent Court’, being the Court of Appeal of the relevant Emirate, and that the Chief Judge of the Court of Appeal may issue orders for interim relief at the request of a party or a tribunal in respect of existing or future arbitrations. In both matters, the orders were issued for arbitrations which had not yet commenced.

 

2. The court fee for provisional relief is AED 320 per application. In contrast, the court fee for interim relief in support of litigation can be as much as AED 20,020. A comparable fee was payable when obtaining interim relief in support of arbitration before the Federal Arbitration Law came into effect.

 

3. It can take up to two weeks for the court to issue its decision. In the past, it was common for applications for interim relief to be decided on the same day as the application being filed, or within 24 to 48 hours after filing. However, the electronic case registration process of the Dubai Courts usually means that a day or two will be taken up before the matter is placed before a judge. This should be borne in mind as interim relief is often time sensitive.

 

4. The application is determined ex-parte. Notice to the defendant is not issued by court prior to hearing the application for provisional relief.

 

5. A single application may be made for multiple contracts, provided that the parties to the contract are the same. In the first of the two matters, the guarantees which were attached were issued in relation to two separate projects and contracts. However, they were between the same parties, and the dispute resolution provisions were identical, and the Court of Appeal accepted a single application and ordered attachment over both guarantees.

 

6. A party which is not party to the arbitration agreement may be a party to an application for interim relief. In the second of the two matters, the guarantee was procured by a related third party which, although having certain rights under the transport contract was not a party to the arbitration agreement. This third party was named as a co-applicant, together with the party that was subject to the arbitration agreement. Although the court did not provide any reasoning, it is unlikely that the court would have accepted the application for interim relief under the Federal Arbitration Law if at least one of the applicants was not a party to the arbitration agreement.

 

7. It is no longer necessary to file a substantive suit in court. Under the Federal Arbitration Law, a ‘notice of a request for arbitration’ is deemed to satisfy the requirement of a substantive suit and a separate substantive suit need not be filed in court. In practical terms, the applicant should be ready to demonstrate to the court that the notice of arbitration was issued within eight days of the order for interim relief being granted. It should be noted that until last year, the time period for filing a substantive suit was eight days from the date on which the order for interim relief was implemented. However, following amendments to the UAE Civil Procedure Law in 2019, the time period is now eight days from the date on which the order for interim relief was issued.

 

It is important to bear in mind that, as there is no system of binding precedent in the UAE, it is possible that the court might take a different approach in future cases in relation to points 5 and 6. ■

The New DIFC Leasing Law

On 11 January 2020 a new leasing law was introduced in the Dubai International Financial Centre, Law 1 of 2020 (the New Law); and on 14 January 2020 the associated regulations were issued (the Regulations).

 

The New Law and Regulations are an important development for the DIFC. We expect that they will have a positive impact on the real estate market. The New Law is more comprehensive than the previous law (Law 10 of 2018) and brings the DIFC into alignment with the detailed onshore Dubai leasing law set out in Law 26 of 2007 (as amended by Law 33 of 2008); Decree 43 of 2013; and Decree 26 of 2013.

 

In this InBrief we look at the major changes that will impact landlords and tenants in the DIFC under the New Law.

 

Application of the New Law

 

The Regulations have now clarified that the New Law applies to all leases in the DIFC which were entered into prior to the date of commencement of the New Law, except where provisions in the New Law requires compliance with time and notice periods which are incapable of being applied to such leases (Regulation 4.1). In addition, it is important to note that the New Law does not apply to the following two types of leases:

 

1. A lease of premises which are used primarily for serviced apartments or hotel inventory leased as part of a hotel; or

 

2. A lease which is entered into by the parties to a Mortgage of the Leased Premises in accordance with the terms of the Mortgage.

 

A Lease has been defined in the New Law as “a lease under which a person lets premises, which includes a sublease and any form of agreement (howsoever described) that gives a legal right of exclusive possession of premises to the occupant for a specific or ascertainable term in exchange for another consideration.”

 

As such, the New Law applies to all residential, retail and commercial leases in the DIFC.

 

Tenant’s rights

 

The New Law gives tenants of residential premises greater rights by introducing:

 

  1. a new security deposit scheme;
  2. a requirement for entry condition reports; and
  3. rules governing rent increases.

 

The new security deposit scheme

 

The key elements of the new security deposit scheme, which is only applicable to residential leases, are as follows:

 

1. If a landlord of residential premises chooses to charge the tenant a security deposit, then the security deposit must not exceed 10% of the rent.

 

2. A security deposit may only be used to compensate the landlord after a residential lease has ended for the following purposes:

 

a. non-payment of rent;

b. damage to the residential premises, excluding fair wear and tear; or

c. damages for breach of contract, inclusive of direct, indirect and consequential losses.

 

3. A landlord who receives a security deposit must pay it to the DIFC Registrar of Real Property within 30 days.

 

4. The Registrar must hold all security deposits in an escrow account.

 

5. On the expiry or earlier termination of a residential lease:

a. if the landlord and the tenant agree on the amount of the security deposit to be refunded to the tenant, then they must sign and lodge a release form with the Registrar;

b. but, if the landlord and the tenant disagree on the amount of the security deposit to be refunded, then either party may notify the Registrar of the existence of the dispute, and the dispute will be resolved by the Court.

 

6. The Registrar will only pay out an amount of the security deposit in accordance with:

a. a release form signed by the landlord and the tenant agreeing on the amount of the security deposit to be refunded; or

b. a order of the Court.

 

The New Law defines a “Court” as the DIFC court or any specific tribunal created for dealing with disputes under the New Law. Under the previous law, the DIFC Small Claims Tribunal had exclusive jurisdiction over tenancy disputes in the DIFC where the claim amount did not exceed AED 500,000. We assume that this tribunal will continue this role under the New Law, including resolving disputes arising under the new security deposit scheme. However, we expect that a further regulation will be made by the Board of Directors of the DIFCA under the New Law to clarify this issue.

 

Rent Increases

 

For residential leases, a landlord is now required to give a tenant written notice of a proposed rent increase at least 90 days prior to the expiry of the residential lease. If the landlord fails to give this notice, then the rent increase will be invalid.

 

Conclusion

 

Given that Dubai is expecting an increase in rental unit demand as a result of its new long term visa initiatives, dropping rents and Expo 2020, the New Law is a welcome development which may stimulate the property market by attracting more businesses and individuals to rent in the DIFC.

 

If you require more detailed information, please do not hesitate to contact Afridi & Angell. ■

 

 

Sanctions on the Rise

Now, more than ever, sanctions lists are growing daily, and therefore navigating the challenges related to compliance is becoming more complex. In the region, prominent US sanctions already exist with respect to Iran, Syria and Yemen. There has been talk of US sanctions against Iraq and Turkey.

 

A prime example of prominent sanctions are those that the United States on November 5, 2018 fully re-imposed on Iran. These sanctions had been previously lifted or waived under the Joint Comprehensive Plan of Action (or ‘Iran deal’). Given the recent tensions between the US and Iran, the US is aggressively continuing its campaign of maximum financial pressure on the Iranian regime and intends to strenuously enforce the sanctions that have come back into effect as well as newly announced sanctions.

 

While historically enforcement actions have been more prevalent in the financial services sector, regulatory bodies are increasingly turning their attention to other industries which have recently been subjected to significant fines.  The US Department of the Treasury has issued 22 enforcement actions along with a record of USD1.3 billion in total penalties in 2019 alone.

 

Consequently, sanctions and compliance continue to remain critical factors for businesses across all sectors.

 

While not exhaustive, the following are some proactive measures which should be taken by companies to mitigate the risk of violating sanctions:

 

  • Understanding international sanctions regimes: Companies should obtain an appropriate level of understanding of international sanctions regimes, seek information from professionals to the extent necessary, and conduct research to make a determination as to the legality of their transactions under the relevant sanctions’ laws. Entities should check with their regulators regarding  the  suitability of specific programs to their unique situations. For example, the US Office of Foreign Assets Control (OFAC) issues public advisories on important issues related to sanctions, and while  these  documents  may focus on specific industries and activities, they should be reviewed by any party interested in OFAC compliance.

 

  • Due diligence: It is important for companies to conduct continuous due diligence on their entire supply chain, including customers and clients (and their respective partners and affiliates) to ensure the continued sanctions compliance of all stakeholders so that none of them become subject to sanctions or penalties. All stakeholders should be subject to periodic KYC checks.

 

  • Risk assessment: The assessment may include risks posed by clients, customers, products, services, supply chain, intermediaries, counterparties, transactions, and geographic locations. For example, an anti-bribery/anti-corruption risk assessment, may be a good foundation for a sanctions risk assessment.

 

  • Sanctions compliance officer:  Companies should designate an individual with the primary responsibility for integrating the company’s policies and procedures into the daily operations of the company or a dedicated “sanctions compliance officer”. The sanctions compliance officer should be charged with assisting in the development of a compliance program and to monitoring and verifying that procedures are being followed.

 

  • Formulate a sanctions compliance program: Companies should develop and implement a sanctions compliance program and policy manual in order to understand what actions can and cannot be taken. There is no single compliance program suitable for every company. It is further recommended that the sanctions compliance program be subject to regular review and, when necessary, routinely updated.

 

  • Internal controls: The purpose of internal controls is to clarify expectations, define procedures and processes pertaining to sanctions compliance (including reporting and escalation chains), and minimize the risks identified by the company’s risk assessment. Policies and procedures outlining the sanctions compliance program should be easy to follow, capture the organization’s day-to-day operations, and designed to prevent employees from engaging in misconduct.

 

  • Training: The training program on the company’s sanctions compliance program should be provided to all appropriate employees and personnel (and, in particular, business units operating in high-risk areas) on a periodic basis, and at a minimum, annually.

 

  • Use of Technology: Invest in software or update sanctions screening software to comply with sanction regulations.

 

  • Reporting: Companies should put appropriate procedures in place to identify, escalate, and report transactions that are in violation of sanctions regulations (voluntary self-disclosure).

 

  • Contractual safeguards: Companies should include contractual exit rights in all agreements with their counterparties whereby, should enforcement action be taken against a counterparty, the company has the right to remove itself from the transaction.

 

  • Snap-back safeguards: Measures taken by companies should include specific sanctions-related force majeure provisions and sanction termination and wind-down provisions which can provide contractual protection in the event that sanctions are re-imposed in the case of snap-back.

 

  • Documenting: It is imperative for corporates to document and report all sanctions compliance efforts (for example, keep a written record of their screening policy and be able to justify the timescales and frequency of screenings). Their systems and checks should ensure a documented trail of all actions taken in such matters.

 

* * *

 

A company in noncompliance may be opening itself to adverse publicity, fines, and even criminal penalties (if violations are other than inadvertent). Taking preemptive actions would enable a company to show that it has proactively taken steps to structure its operations to ensure that it is compliant with sanctions in an open and transparent manner. Such preventative measures would significantly reduce the potential risks of costly sanctions violations and provide a company with a competitive advantage of being in a better position to navigate sanctions. ■

 

 

Enforcement of UAE Judgments in India – Update

The UAE has treaties with several countries for judicial co-operation and the mutual recognition and enforcement of judgments. These include Tunisia, the GCC countries, Algeria, France, Jordan, Egypt, Syria, Armenia, China, Sudan and Pakistan.

 

On 25 October 1999, the UAE entered into such a treaty with the Republic of India, via the Agreement on Juridical and Judicial Cooperation in Civil and Commercial Matters for the Service of Summons, Judicial Documents, Judicial Commissions, Execution of Judgments and Arbitral Awards. Notwithstanding this treaty, parties had experienced difficulty in enforcing a UAE judgment in India due to the Central Government of India not issuing a notification pursuant to Section 44A of the Code of Civil Procedure of India (CPC). Section 44A (Execution of decrees passed by Courts in reciprocating territory) requires the Central Government of India to issue a notification in the Official Gazette declaring the UAE as a reciprocating territory.

 

According to a secondary source, a district court in one of the States in India recently dismissed a petition for the enforcement of a Dubai judgment on the grounds that the notification required under Section 44A of the CPC had not been made.

 

To remedy this problem, the Indian Ministry of Law and Justice, issued a notification in the Gazette of India on 17 January 2020 declaring the UAE to be a reciprocating territory for the purposes of Section 44A of the CPC. Following this notification, a judgment passed by a UAE court will be viewed as a judgment from a reciprocating territory, and will remove an obstacle in enforcing UAE judgments in India. ■

 

DIFC Workplace Savings Scheme (with effect from 1 February 2020)

On 14 January 2020, the Employment Law Amendment Law (DIFC Law 4 of 2020) and the Employment Regulations (the Amendment) were enacted. The Amendment introduces a new mandatory workplace savings scheme, which replaces the current end-of-service gratuity regime. The new scheme commences on 1 February 2020.

 

Effect of the Amendment 

 

The main consequence of the Amendment is that:

 

  • End-of-service gratuity benefits (EOSB) of employees will accrue until 31 January 2020 then stop accruing thereafter.
  • From 1 February 2020, employers must make monthly mandatory contributions into a professionally managed and regulated savings plan (Qualifying Scheme) for the benefit of their employees.

 

The monthly mandatory contributions into the Qualifying Scheme must be at least:

 

  • 5.83 percent of the employee’s basic salary for the first five years of service; and
  • 8.33 percent of the employee’s basic salary for each additional year of service,

 

provided that the basic salary is not less than 50 percent of the employee’s total monthly compensation.

 

 

Who Does This Apply To? 

 

DIFC-based employers and employees (with the exceptions listed below). This includes employees under a DIFC visa that are seconded outside of the DIFC.

 

The Qualifying Scheme does not apply to DIFC-based:

 

a) employees registered with the GPSSA (typically, UAE and GCC nationals);

b) employees of the DIFC Authority, or other local or federal government entities;

c) employees seconded to a DIFC entity from other regions;

d) entities that are exempted from the application of DIFC Law 2 of 2019 (the Employment Law) by the President of the DIFC;

e) employees serving a notice period on 1 February 2020;

f) employees under a fixed term contract expiring on or before 1 May 2020; and

g) equity partners of DIFC entities.

 

DEWS Plan

 

The default Qualifying Scheme is the DIFC Employee Workplace Savings (DEWS) Plan.

 

Employers wishing to enroll in an alternative Qualifying Scheme must apply for and obtain a Certificate of Compliance from the DIFC Authority.

 

Voluntary Contributions

 

An employee can make monthly voluntary contributions to the Qualifying Scheme by written request to their employer. Their employer will then deduct the agreed amount from the employee’s total monthly compensation and transfer the same into the Qualifying Scheme each month.

 

Employee’s Entitlement under the Amendment 

 

At termination of employment (End Date), the employee shall be paid:

 

  • their EOSB accrued until 31 January 2020 (see comments in the section below); and
  • all the mandatory contributions from 1 February 2020 to the End Date,

unless the employee opts to defer receipt of the above to a later date.

 

End of Service Benefits

 

Employees can choose to transfer their existing EOSB to a Qualifying Scheme. This choice would change the amount they receive at their End Date.

 

Fines

 

Employers that fail to make the monthly mandatory contributions, do not transfer EOSB to a Qualifying Scheme as per the employee’s request, or do not have a Certificate of Compliance (if enrolled in an alternative Qualifying Scheme) shall be subject to a maximum fine of USD 2,000 per contravention for each employee.

 

Any agreements between the employer and employee against participating in a Qualifying Scheme or to pay contributions less than the amount stipulated above shall be null, void and unenforceable.

 

Immediate Administrative Tasks for DIFC Entities

 

DIFC entities should be mindful of their immediate administrative tasks now applicable as a result of the Amendment, which include:

 

  • appointing a DEWS Plan signatory through their DIFC portal;
  • having in place an internal system to calculate each of their employees’ contributions and ensure that monthly contributions are made on time;
  • obtaining written consent of employees as to whether to transfer their EOSB to a Qualifying Scheme or not;
  • registering with the DEWS Plan or applying for a Certificate of Compliance, if they wish to enroll in an alternative Qualifying Scheme;
  • enrolling current, eligible employees to a Qualifying Scheme by 31 March 2020, and new, eligible employees before the expiry of two months following their respective employment date.
  • informing their eligible employees of their rights under the applicable Qualifying Scheme; and
  • making monthly contributions (both mandatory and, if applicable, voluntary) of employees as per the rules of the applicable Qualifying Scheme. ■

Slightly more clarity: Economic Substance Regulations in the DIFC

The DIFC has provided slightly more clarity as to how UAE Cabinet Decision 31 of 2019 (the Economic Substance Regulations, or ESR) will apply within Dubai’s financial free zone. Helpful as the guidance is, significant questions remain.

 

The DIFC held a presentation on 17 December to discuss the Economic Substance Regulations. The first point of note was that all businesses in the DIFC must file an ESR notification by 31 March 2020. The content of this notification is set out in the Economic Substance Regulations themselves. There are three components to the notification.

 

1. The business must declare whether or not it is engaged in one of the nine “Related Activities” set out in the Economic Substance Regulations;

 

2. If it does conduct one of the Related Activities, the business must indicate whether any of its income from such activity is subject to any sort of tax outside of the UAE; and

 

3. The dates of the business’s financial year.

 

The notification requirement will apply to financial service providers regulated by the DFSA, and also to all other non-regulated businesses, including DIFC branches of businesses that may be making similar notifications outside of the DIFC. Any entity registered with the DIFC’s Registrar of Companies will need to file these notifications. The format of the notification has yet to be decided, but it was suggested that the UAE’s Ministry of Finance (being the “Competent Authority” pursuant to the Economic Substance Regulations) will be standardizing the forms for ESR notifications and reports.

 

The second point of note is the DIFC’s Registrar of Companies will be the “Regulatory Authority” in the DIFC. Expectations (based on the wording of Cabinet Decision 58 of 2019) were that the DFSA would be the Regulatory Authority in the DIFC. There was a suggestion that the Registrar of Companies may delegate some of its responsibilities to the DFSA, but for the time being it appears that the Registrar will fulfill this important role. (It is the Regulatory Authority which decides if a business has met the economic substance requirements, and if not, reports the business to the Ministry of Finance.)

 

The DIFC made it very clear in their presentation that they would be adopting a “substance over form” approach when considering whether a business was conducting one or more of the Related Activities. This was a welcome clarification, as some market commentators had been suggesting that businesses would only be caught by the Economic Substance Regulations if their commercial license specifically mentioned one (or more) of the nine Related Activities.

 

The presentation ended with a Q&A session. This revealed that significant areas of uncertainty and concern remain. Of particular concern to businesses in the DIFC was whether all financial service providers would be considered to be undertaking a Related Activity. There was a suggestion that the DIFC and the DFSA would jointly host a further presentation in the new year to answer some of those questions.

 

Practical next steps

 

All businesses in the DIFC should diarise 31 March 2020 and note their obligation to file a notification with the Registrar of Companies by that date. In order to make that notification they will need to determine if they are undertaking a Related Activity. If they are undertaking a Related Activity, and deriving income from it, they will then need to file an ESR report. The ESR report must demonstrate that they meet the economic substance thresholds. Failure to meet these thresholds may result in significant fines and/or suspension of licenses. Any business with concerns about meeting such thresholds will have several months to take remedial action, as most businesses conducting a Related Activity in the DIFC will have until the end of 2020 before they need to make their first ESR report. Afridi & Angell is able to advise clients on the Economic Substance Regulations, although general uncertainty remains regarding the approach the Registrar of Companies will take when considering (a) the scope of the specific Related Activities and (b) what needs to be done to meet the economic substance thresholds. ■

The use of experts in the UAE Municipal Courts: Seven things you need to know

1. There is a high possibility that you will have to present your case to an expert: Although the appointment of experts is more likely in disputes involving technical issues (e.g. maritime disputes, construction disputes, etc.), it is increasingly common for the UAE courts to refer disputes which, on the face of it do not require expert assistance, to experts. The courts have the power to do so in terms of Article 69 of the Federal Evidence Law (No. 10 of 1992 as amended) which provides that a court may delegate to one or more experts when necessary. Article 69 does not set out any criteria to be satisfied in exercising this power. The most frequent appointment is of accounting experts.

 

2. It is likely to be a pivotal stage of litigation: In the clear majority of cases, the courts adopt the conclusions of the expert, even though the expert’s report is not binding on the court. However, Article 90(2) of the Federal Evidence Law provides that if the court issues a judgment which contradicts the findings of the expert, the court must state the reasons why it disagrees with the expert’s findings. It is therefore important to ensure that your case is properly pleaded and understood by the expert.

 

3. You may object, on certain limited grounds, to the appointment of a person as an expert: A party may object to an expert if there is a reason to believe that he/she cannot perform his/her duties impartially, if he/she is related by blood or by law to one of the parties up to the fourth degree, is a proxy to one of them in his/her personal affairs, a guardian or tutor or working for one of the parties, or if he/she or his/her spouse is in actual litigation with one of the parties in the case or with his/her spouse. An objection must be filed within a week of the order appointing the expert.

 

4. Experts have wide discretion to carry out their functions: The order appointing an expert will set out a mandate for the expert, and will vest the expert with the authority and powers required to carry out his tasks, e.g. to visit the premises of the parties, examine documents, and hear witnesses without administering an oath to them. Parties can take the opportunity to ask the expert to require their opponents to produce certain documents, which is useful as document production in the courts is very limited.

 

5. You have an uphill task ahead of you if the expert does not give you a favourable report, but all is not lost: The parties are given an opportunity to comment on the expert’s report before the court issues judgment. A party may also request the court to refer the matter to a different expert, or a panel of experts, or an expert at the Ruler’s Court, although such requests are rarely granted. The court, on its own initiative or upon request of a party, may order the expert to be present in court to be questioned, although such orders are also rare.  Pursuant to Court Circular 4/2018 issued by the Dubai courts, parties are permitted to submit reports prepared by an expert for consideration by the judge. The privately appointed expert must be accredited by the courts, and his report should not criticize the court-appointed expert’s report (even though there may be disagreement regarding the findings).

 

6. An expert could be criminally liable if he provides a report that he knows to be false, or gives a false interpretation of facts: Article 257 of the UAE Penal Code (Federal Law No. 3 of 1987 as amended) provides for a sentence of imprisonment between one and five years. In practice however these are difficult allegations to prove.

 

7. An expert’s report may assist a party to obtain provisional relief: The UAE courts have the power to grant provisional relief pursuant to applications made without notice to the defendant. Such relief is sought primarily under the provisions of Article 252 of the UAE Civil Procedure Code or the Federal Maritime law. These discretionary orders are granted on the basis of documentary evidence filed by the applicant, and having a report from an expert accredited by the court can sometimes improve the odds of obtaining an order from the court. ■

Off-Plan Construction Delays: Options for Resolution in Dubai

By and large the Dubai offplan real estate market is well regulated and developers complete construction by the “anticipated completion date” as set out in the Sale and Purchase Agreement, albeit often subject to the contractual right to extend such date for a further 12 months. In addition, purchasers can take comfort that the Real Estate Registration Agency (RERA) actively monitors the progress of construction works for each off-plan project in Dubai, and in most cases a copy of RERA’s audit report can be obtained from the Dubai Land Department’s website.

 

However,  amid  a  sluggish  real  estate  market  and  global  economy,  there  have  been  instances  of construction delays of some off-plan projects as developers face cash flow issues.

 

It is important that purchasers are aware of their rights in order to address these challenges in the event that they find themselves facing such delays.

 

In this inBrief we discuss the ramifications under law of such delays, and what a purchaser can do in the event a dispute.

 

The Law

 

A purchaser may apply to court to terminate the contractual relationship between the purchaser and the developer in the circumstances set out in Article 20 of Executive Council Resolution 6 of 2010. In the context of construction delays, the relevant circumstances are as follows: “any other cases that may require termination of the agreement in accordance with general principles of law.”

 

In addition, the Article 246 of the Civil Code requires that: “(1) The contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith. (2) The contract shall not be restricted to an obligation upon the contracting party to do that which is expressly contained in it, but shall also embrace that which is appurtenant to it by virtue of the law, custom, and the nature of the disposition.”

 

Practically,  a  purchaser  should  attempt  to  resolve such  dispute  with a  developer  amicably  by lodging a complaint with RERA, failing which the purchaser can consider bringing court or arbitration proceedings (as the case may be) to enforce its rights.

 

Dispute resolution: Court, Arbitration

 

RERA:  In the event a purchaser experiences construction delays, a complaint can be lodged with RERA. It is important to make RERA aware of any construction delays as, pursuant to Article 23 of Executive Council Resolution 6 of 2010, RERA has the power to cancel a project in cases of serious delay, including: “if it is proven to RERA that the developer has no intention of implementing the project” or “if the developer fails to implement the project due to gross negligence”.

 

Where a project is cancelled by RERA, the developer must refund all payments received from the purchaser pursuant to the procedures and provisions stipulated in Law 8 of 2007.

 

Arbitration:  In the event of construction delays and if filing a complaint with RERA does not render results then the purchaser should look to the dispute resolution mechanism in the SPA, which is most commonly arbitration.

 

However,  a  purchaser  will  need  to  seek  legal  advice  as  to  the  strength  of  its  arbitration  claim, particularly as the SPA will often permit the developer to extend the “anticipated completion date” for a further 12 months, or excuse certain construction delays as events of force majeure.

 

Arbitration is beneficial as it is usually faster than court; it is private; and specialist arbitrators can be used to accurately determine a matter. In Dubai the most popular arbitration venues are before the Dubai Chamber of Commerce  and  Industry  (DIAC)  or  the  Dubai  International  Financial  Centre/London  Court  of International Arbitration (DIFC/LCIA) Centre.

 

Court:  If there is no arbitration clause contained in the SPA, then the purchaser must file its case with the Dubai courts. Again, a purchaser will need to seek legal advice as to the strength of the claim.

 

Proceedings are started by filing a claim in the relevant court office on payment of the required court fee. On application by the claimant, payment of court fees can be deferred in exceptional cases. The court fee depends on the value of the claim, and in Dubai has a maximum cap of AED 40,000. This fee is payable either on an application for provisional relief, or on filing the main lawsuit.

 

The claim must meet procedural requirements, include the names and addresses of the parties to the action, and include details of the claim. Documents in support of the claim are usually annexed to the claim and must be translated into Arabic. The court issues a summons with a hearing date endorsed on it for service on the defendant, with a copy of the claim and any supporting documents filed by the claimant.

 

Once an answer has been filed, the trial is adjourned for the claimant to respond. Further adjournments are given so that memoranda can be filed by the parties. Once the court believes that the case has been sufficiently pleaded, it reserves the matter for judgment. The entire proceeding is based on written submissions supported by documentary evidence. The court usually appoints an expert to assist it and usually accepts the expert’s report.

 

Conclusion

 

Further instances of construction delays with respect to some off-plan projects are likely to occur as developers face increasing cash flow issues amid a sluggish real estate market and global economy. Purchasers should be more aware than ever of their legal rights, potential remedies and developers’ responsibilities. ■